April 13 SONAR Observations: Competitive Intermodal Lanes, Shipper’s Handbook, etc.
Highlights of Wednesday’s SONAR reports are below. For more information on SONAR – the industry’s fastest freight forecasting platform – or to request a demo, Click here. Also be sure to check the latest update of SONAR, TRAC — the most recent spot rate data in the industry.
Competitive intermodal/dry van lanes
Insight: Dry van rates continue to drop sharply in competitive intermodal lanes.
- While national average dry van rates have fallen 67 cents per mile from their Jan. 9 peak, the decline has been more severe than that in many competitive intermodal lanes.
- For example, dry van fares are approximately $1 per mile lower in the CHI-EWR/Linden and CHI-ATL lanes (two middle graphs below).
- Despite the general drop in dry van spot rates this year, intermodal spot rates have been rising at many of the major domestic intermodal routes since the start of the year.
What does this mean for you?
Brokers: Brokers should continue to lower their capacity offers in the densest intermodal lanes. SONAR shows these lanes have tender rejection rates and spot rates that are falling faster than the U.S. freight market as a whole. On top of that, many of the routes that fit this description face competition from rail intermodal.
Carriers: To maximize revenue per mile, carriers may want to avoid larger freight markets, which have generally shown more slack than small and medium-sized freight markets. It may be more difficult to recharge in small and medium-sized markets, but in most cases there is less competition from rail intermodal.
Senders: Shippers with intermodal contracts in place should keep an eye on dry van load rates, even in lanes that are typically “intermodal lanes,” such as LA to Dallas. Highway fares have fallen faster than expected this year, which could alter the relative economy between modes. Meanwhile, rising intermodal spot rates in some lanes suggest Class I railroads have become more concerned with securing intermodal capacity for contracted shippers, which could lead to a re-emergence of intermodal service issues.
Across the country, volumes have plummeted and show no signs of increasing anytime soon. Typically, at this time of year, outbound tender volumes typically begin to increase as shippers begin shipping their spring and summer cargo. However, as consumers continue to shift their spending habits towards experiences and away from consumer goods, volumes will continue to stabilize and return to pre-pandemic levels. The interesting thing to note is that as volumes decrease across the country, outbound bidding times increase. When capacity slackens, you can expect outbound bidding timeframes not to jump in response. Keep these tender deadlines as high as possible to avoid being charged an unnecessary amount.
Way to watch: LA to Seattle
Insight: Spot rates continue to fall as volumes and releases reach record highs in Los Angeles.
- Spot rates hit six-month lows, falling to $3.66/mile from early January highs of around $5.30 per mile, a quarterly decline of $1.64/mile.
- Outbound tender rejections fell to 3.72% LA and 3.64% LA Seattle, the lowest levels since pandemic-related declines in April 2020.
- Outbound tender volumes fell slightly from highs of 350 to 400 basis points, but remained high at 341.12 basis points. Greater capacity in the market has an impact, as seen in rejection levels of outgoing tenders.
What does this mean for you?
Brokers: Rapid levels of rejection of outbound tenders indicate that more trucking capacity continues to enter the market and spot rates reflect this trend. Carriers landing in Los Angeles now run the risk of losing significant price leverage due to localized overcapacity relative to demand for full truckloads. Due to higher outbound tender volume levels, there is a greater opportunity to pressure prices and, depending on the type of customer, to take advantage of the information lag by increasing margins.
Carriers: Single-digit outbound tender rejections will put increased pressure on service levels and outbound tender compliance from customers looking for savings after more than two years of record pricing in the cash market. Expect customers and brokers to lower prices as contract freight and the spot market may be affected. During these times, the focus on service and relationships could be a way to navigate the downward price pressure exerted by other carriers in the market.
Senders: Outbound tender acceptance levels are finally in a favorable position for shipping goods out. Take this opportunity to assess the performance and pricing provided by incumbent carriers on contracted lanes and take advantage of this volatility and overcapacity to drive down pricing on spot market loads. Depending on the price and direction of your load, it may be less expensive to use the spot market at the expense of auctioning committed volumes to incumbent carriers. Regardless of direction, the record number of new carriers entering the market is finally having a noticeable impact on major metropolitan markets, just as consumer demand is cooling due to inflation.
Consumer credit usage increased significantly in the most recent report with data through February. Overall debt has increased by $42 billion through February, now totaling $4.5 trillion. Revolving credit is largely made up of credit card spending and grew by 20.7%. The rapid rise in February is concerning as there was a runaway increase in gasoline prices throughout March due to the Russian-Ukrainian conflict. We also found that spending on durable goods declined over the same period. Increased credit card usage will reduce consumers’ ability to spend on goods over the coming months and reduce freight volumes. The strength of the labor market is the last pole supporting consumer activity.
Retail Sales, Industrial Production, Producer Price Index and Consumer Price Index will all be updated over the coming week. Retail sales were decent on the surface in the latest report, but digging deeper, much of the upward movement came from spending at gas stations throughout February. The growth rate of industrial production has likely peaked and a slower, more subdued trend will likely set in. Defense spending is a volatile segment but is expected to grow in the future. Capacity for flatbed trailers will likely continue to decline, but not at the same rate as capacity for refrigerated or van trailers, as there is still a long backlog for construction and infrastructure projects.
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